Compared with the epic works that have made his name - the shark in formaldehyde, the bisected cow - Damien Hirst's work in progress is a small, delicate object: a life-size human skull. Not just any skull, mind, but one cast in platinum and encased entirely in diamonds - some 8,500 in all. It will be the most expensive work of art ever created, costing between £8m and £10m.

Unveiling his latest work exclusively to The Observer, Hirst said: 'We have been buying diamonds slowly and have worked out that it will take about eight and half thousand to completely cover the surface of the skull.'

Hirst, who is in London for meetings with his latest collaborators, Bond Street jewellers Bentley & Skinner, added: 'The biggest expense will be the 50-carat beauty that will sit on the forehead. That one alone will cost in the region of £3m to £5m. It is certainly the biggest single undertaking by a jeweller since the Crown jewels'.

Hirst, 40, who was recently ranked as the most powerful individual in the contemporary art world by Art Review magazine, is reputedly worth in the region of £100m.

Creating the world's most expensive work of art, he says, 'will be a lot less stressful than putting a bloody great shark in a tank of formaldehyde'. Nevertheless, even by his ambitious standards, the diamond-encrusted skull, entitled 'For the Love of God', is a risky undertaking. The cost of making it will inevitably be reflected in the selling price, which could be up to £50m.

Then there will be the small problem of security. 'For the Love of God' will be the centrepiece of a forthcoming Hirst show, Beyond Belief, which will inaugurate Jay Jopling's new gallery, White Cube 3, in London's West End in June 2007.

'The demands of the insurance company will dictate the level of security', said Hirst's business adviser, Frank Dunphy. 'But with a unique project like this you're talking about the kind of security more synonymous with an international airport than an art gallery.'

'I just want to celebrate life by saying to hell with death,' said the artist, 'What better way of saying that than by taking the ultimate symbol of death and covering it in the ultimate symbol of luxury, desire and decadence? The only part of the original skull that will remain will be the teeth. You need that grotesque element for it to work as a piece of art. God is in the details and all that.'

Why, though, is he doing it? 'I've always adhered to the principle that the simplest ideas are the best, and this will be the ultimate two fingers up to death. I want people to see it and be astounded. I want them to gasp.' But what if it turns out to be more bling than breathtaking? 'If it's vulgar, I'll put it on a chain and hang it round my neck - or I'll stick it on the mantelpiece.'